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Oil and gas industry survey 'most negative yet', analysts warn

Published 19/05/2016

A total of 85% of oil and gas contractors expect to increase their involvement in decommissioning in the next three to five years
A total of 85% of oil and gas contractors expect to increase their involvement in decommissioning in the next three to five years

Oil and gas operators in the North Sea plan to lay off one in six UK-based workers this year as industry confidence remains low, a new report has found.

The latest oil and gas survey is the "most negative" yet, according to a partner at its sponsors, law firm Bond Dickinson.

The report also found three-quarters of North Sea oil and gas contractors are "less confident" about their prospects than they were a year ago. However, confidence levels have marginally improved from their record low in November.

Operators surveyed reported a 15% fall in UK staff in the past 12 months and expect a further 17% of staff to lose their jobs this year - almost triple the 6% predicted six months ago.

For contractors, the 12 months to March 2016 saw a 13% reported weighted average reduction in their UK-based headcount.

About one in four companies (24%) said their top priority is cutting costs while 42% cited increasing efficiency and productivity as their main concern.

The joint survey by Aberdeen & Grampian Chamber of Commerce and the Fraser of Allander Institute found 14% of contractors reported working at or above optimum levels in the UK Continental Shelf (UKCS) compared to 79% three years ago.

The level of demand, commodity price and economic climate are cited as the top factors limiting activity in the North Sea and 42% of firms expect to reduce investment in the next two years, while 12% plan to increase it.

One projected area of growth is decommissioning, with 85% of contractors expecting to increase their involvement in this sector in the next three to five years - up from 79% six months ago.

Questioned on the EU referendum, 45% of respondents said it was difficult to reach a clear view whether a Brexit vote would be positive for the industry, 20% said it would make little difference, 27% said it would be "unhelpful" and 7% believed it would be positive.

Uisdean Vass, oil and gas partner at Bond Dickinson, said: "Six months ago I described the 23rd Oil and Gas Survey as the most negative we had experienced. Unfortunately this, the 24th survey has surpassed it.

"The uncertainty which all those in the industry face at the moment regarding their livelihoods continues and any slowdown in the shedding of jobs does not appear to be materialising."

Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce, said: " In the previous two surveys we carried out, we found confidence had hit record lows, with an all-time low in November 2015.

"This time, while the figure is still firmly in negative territory, it has marginally improved, which may perhaps show we are near the bottom of the curve."

Scottish Labour North East MSP Lewis Macdonald said: "Thousands of people in the north-east and across Scotland have lost their jobs as a result of the downturn in oil and gas. This survey confirms that thousands more are likely to be lost in coming months.

"The offshore trade unions are right to call for a national summit to address the risk to the Scottish and UK economies posed by the continuing oil jobs crisis.

"We need government action, not only to support those facing redundancy now but also to protect Scotland's ability to compete for investment and jobs in the longer term."

A Department of Energy and Climate Change spokesman said: "This government is clear that the broad shoulders of the UK are 100% behind our oil and gas industry and the thousands of workers and families it supports.

"We have established the Oil and Gas Authority to drive greater collaboration and productivity within industry and in the last two budgets we announced radical packages of tax measures worth £2.3 billion to ensure the UKCS remains an attractive destination for investment. No other government has made fiscal changes as extensive in response to falling oil prices.

"In January this year we announced a further package of measures including another £20 million funding for a further round of seismic surveys and our strategy to maximise economic recovery of the UKCS."

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